Judge squashes challenge to Sarbanes-Oxley

"Burdens" on businesses, constitutionality cited by plaintiff

The six-year-old law, which requires top executives of publicly traded companies to certify corporate financial statements and increases the level of auditing, has been criticized by some Maryland business executives for being too costly and unclear. Rockville real estate development company Bresler & Reiner recently delisted from the over-the-counter bulletin board regulated stock service due largely to the costs involved in complying with the law.

The legal challenge was brought by Beckstead and Watts, a Nevada accounting firm, and the Free Enterprise Fund, a Washington "limited government" advocacy group. The lawsuit questioned the constitutionality of the Public Company Accounting Oversight Board, which oversees public companies' auditors under the act.

Plaintiffs contended that the United States president, not the U.S. Securities and Exchange Commission, should appoint the board's five members. Attorneys for the government oversight board argued that other independent agencies, including the Federal Trade Commission, were not directly controlled by the president.

Brad Beckstead, managing partner of Beckstead and Watts, said in a statement that he was "sorely disappointed" with the decision and was discussing options with his attorneys on whether to appeal the case.

The costs to comply with the law continue to be a significant barrier for small entrepreneurial and developing companies, said Beckstead, whose company focuses on small publicly traded businesses. "The burdens have pushed the majority of micro-cap and ‘development stage' companies either out of business or offshore," he said.

The Center for Audit Quality, a Washington group affiliated with the American Institute of Certified Public Accountants that serves investors and auditors, praised the decision, saying it would aid the stability of capital markets.

In the 2-1 decision of the Washington appeals court, the two judges for the majority opinion wrote that government oversight board members are "subject to direction and supervision of the [SEC] and thus are inferior officers not required to be appointed by the president."

The dissenting judge wrote that the law made the oversight board "unaccountable and divorced from presidential control to a degree not previously countenanced in our constitutional structure."